This invention relates to methods and systems for operating revolving credit programs and, more specifically, to revolving credit programs in which the interest rate applied to an outstanding balance is varied.
Revolving credit programs typically are offered by banks, savings and loans, federal savings banks, credit unions and other credit providers, and operate to advance funds as cash advances or to pay for purchases made by a customer, such as through a credit card or a personal line of credit, and in some instances to pay for checks written by the customer, or to cover funds provided through other access devices, such as automatic teller machines, telephone communication devices and personal computers. Under such revolving credit programs, the customer enters into an agreement with a credit provider in which the unpaid balance of the customer's loan is assessed a finance charge which represents either a fixed interest rate or a variable interest rate which is tied to the prime rate or some other interest rate index.
Once debt is incurred, the customer generally has three options for repayment of the debt. One option is for the customer to pay the entire outstanding balance and avoid assessment of any interest or finance charges, in the case of purchase transactions. A second option is for the customer to pay a minimum amount required by the credit provider to reduce the amount of the outstanding balance and defer the remaining outstanding balance for later payment. In that case, the customer is assessed interest or finance charges based on the remaining outstanding balance.
Under the third option, the customer pays more than the minimum required by the credit provider but less than the entire outstanding balance. If this alternative is chosen, the customer is assessed interest or finance charges in the same way as the second option.
There presently exist programs in which a tiered interest rate is applied to an outstanding balance. Specifically, different interest rates are applied to various levels of an outstanding balance. Further, systems exist in which different interest rates are applied to varying levels of purchases, or to types of purchases. All such programs are designed to encourage the credit customer to increase purchase volume and/or increase outstanding balance.
Levels of personal debt are reaching record-breaking highs and as a result, credit card delinquency rates are increasing. The ratio of total household debt to disposable income has reached a record high. Accordingly, there is a need for a revolving credit system which provides an incentive to encourage a credit customer to pay off his or her outstanding balance quickly. Furthermore, such a system should be entirely automated and operable on the platform of a personal computer or computer network.